Diminishing returns on a private pension

[Deleted User]

Prism said:

Deleted_User said:

dunstonh said:

I have seen the stress and worry of a retired relative, as they watched their investments fail. 

Investments in the mainstream do not fail.     That is a generalistic statement with caveats but it is extremely rare for mainstream stuff to go wrong.   And where it has done, it is in areas where you would only typically have a limited amount allocated.

If he lost money due to failure then its likely he went into extremely high risk unregulated investments away from the mainstream.   e.g. a cold caller scammer.          Greed is a common factor with those. Along with naivety.

We have to define “failure”. I define it as retiring and dying poor. And categorical statements like the one above are very wrong; demonstrate fundamental lack of understanding of investment risks. 

Here is a simple test for a mainstream Canadian investor who retired with  $1M in the year 2000. The portfolio value has been tracked  for over a decade. The products used were standard 20 years ago. There are 4 portfolios with various asset allocations. Right now all of them have a chance of lasting for the total of 30 years, but the all equity portfolio came close to failure early on and would have been nerve breaking to have. Might still fail, as of Jan 1st our retiree is left with only 500k. Thats not that different from the value of this portfolio in 2008. Never fully recovered once depleted early on in the retirement. The “Growth” portfolio with some bonds isn’t doing much better. 

https://www.financialwisdomforum.org/forum/viewtopic.php?f=30&t=108990&hilit=2000+retiree

I would see it as encouraging that someone who retired at one of the worst times in recent history and used a now out dated withdrawal rate has still managed to likely not run out until year 20+. A small adjustment to the withdrawal rate calculation is probably all that would have been needed. In those early years it there is more chance of being able to top up any income shortfall with a bit of part time income.

We are looking 20 years back. A retiree leaving work today might have to last a lot longer. And who is to say there won’t be worse times to retire than 2000, 1970 or 1930? Going hungry in the next 40 years does not seem like an attractive option even if the probability is low based on the last 100 years. 

The key point here is that someone retiring or approaching retirement with a mortgage has a lot less flexibility to vary his withdrawal rate. In fact, interest rates could go up at the wrong time

dunstonh

I am defining the failure of an investment as a failure of the investment.  i.e. scam or massive loss.     
Not a failure of planning or failure in expectation.  Both of which are more common.

BritishInvestor

Prism said:

Deleted_User said:

dunstonh said:

I have seen the stress and worry of a retired relative, as they watched their investments fail. 

Investments in the mainstream do not fail.     That is a generalistic statement with caveats but it is extremely rare for mainstream stuff to go wrong.   And where it has done, it is in areas where you would only typically have a limited amount allocated.

If he lost money due to failure then its likely he went into extremely high risk unregulated investments away from the mainstream.   e.g. a cold caller scammer.          Greed is a common factor with those. Along with naivety.

We have to define “failure”. I define it as retiring and dying poor. And categorical statements like the one above are very wrong; demonstrate fundamental lack of understanding of investment risks. 

Here is a simple test for a mainstream Canadian investor who retired with  $1M in the year 2000. The portfolio value has been tracked  for over a decade. The products used were standard 20 years ago. There are 4 portfolios with various asset allocations. Right now all of them have a chance of lasting for the total of 30 years, but the all equity portfolio came close to failure early on and would have been nerve breaking to have. Might still fail, as of Jan 1st our retiree is left with only 500k. Thats not that different from the value of this portfolio in 2008. Never fully recovered once depleted early on in the retirement. The “Growth” portfolio with some bonds isn’t doing much better. 

https://www.financialwisdomforum.org/forum/viewtopic.php?f=30&t=108990&hilit=2000+retiree

I would see it as encouraging that someone who retired at one of the worst times in recent history and used a now out dated withdrawal rate has still managed to likely not run out until year 20+. A small adjustment to the withdrawal rate calculation is probably all that would have been needed. In those early years it there is more chance of being able to top up any income shortfall with a bit of part time income.

I think the data in the link would need further investigation as retiring in 2000 from a UK perspective with a 4% withdrawal rate from a global 60/40 portfolio gives me much more positive numbers.

[Deleted User]

BritishInvestor said:

Prism said:

Deleted_User said:

dunstonh said:

I have seen the stress and worry of a retired relative, as they watched their investments fail. 

Investments in the mainstream do not fail.     That is a generalistic statement with caveats but it is extremely rare for mainstream stuff to go wrong.   And where it has done, it is in areas where you would only typically have a limited amount allocated.

If he lost money due to failure then its likely he went into extremely high risk unregulated investments away from the mainstream.   e.g. a cold caller scammer.          Greed is a common factor with those. Along with naivety.

We have to define “failure”. I define it as retiring and dying poor. And categorical statements like the one above are very wrong; demonstrate fundamental lack of understanding of investment risks. 

Here is a simple test for a mainstream Canadian investor who retired with  $1M in the year 2000. The portfolio value has been tracked  for over a decade. The products used were standard 20 years ago. There are 4 portfolios with various asset allocations. Right now all of them have a chance of lasting for the total of 30 years, but the all equity portfolio came close to failure early on and would have been nerve breaking to have. Might still fail, as of Jan 1st our retiree is left with only 500k. Thats not that different from the value of this portfolio in 2008. Never fully recovered once depleted early on in the retirement. The “Growth” portfolio with some bonds isn’t doing much better. 

https://www.financialwisdomforum.org/forum/viewtopic.php?f=30&t=108990&hilit=2000+retiree

I would see it as encouraging that someone who retired at one of the worst times in recent history and used a now out dated withdrawal rate has still managed to likely not run out until year 20+. A small adjustment to the withdrawal rate calculation is probably all that would have been needed. In those early years it there is more chance of being able to top up any income shortfall with a bit of part time income.

I think the data in the link would need further investigation as retiring in 2000 from a UK perspective with a 4% withdrawal rate from a global 60/40 portfolio gives me much more positive numbers.

In 2000 you could get 2.4 CAD for 1 GBP.  Today its 1.7.  That’s a 30% difference right there as the pound got a lot cheaper. 

Balanced (60/40) portfolio did better than the equity and aggressive portfolios I quoted. 

AnotherJoe

Deleted_User said:

BritishInvestor said:

Prism said:

Deleted_User said:

dunstonh said:

I have seen the stress and worry of a retired relative, as they watched their investments fail. 

Investments in the mainstream do not fail.     That is a generalistic statement with caveats but it is extremely rare for mainstream stuff to go wrong.   And where it has done, it is in areas where you would only typically have a limited amount allocated.

If he lost money due to failure then its likely he went into extremely high risk unregulated investments away from the mainstream.   e.g. a cold caller scammer.          Greed is a common factor with those. Along with naivety.

We have to define “failure”. I define it as retiring and dying poor. And categorical statements like the one above are very wrong; demonstrate fundamental lack of understanding of investment risks. 

Here is a simple test for a mainstream Canadian investor who retired with  $1M in the year 2000. The portfolio value has been tracked  for over a decade. The products used were standard 20 years ago. There are 4 portfolios with various asset allocations. Right now all of them have a chance of lasting for the total of 30 years, but the all equity portfolio came close to failure early on and would have been nerve breaking to have. Might still fail, as of Jan 1st our retiree is left with only 500k. Thats not that different from the value of this portfolio in 2008. Never fully recovered once depleted early on in the retirement. The “Growth” portfolio with some bonds isn’t doing much better. 

https://www.financialwisdomforum.org/forum/viewtopic.php?f=30&t=108990&hilit=2000+retiree

I would see it as encouraging that someone who retired at one of the worst times in recent history and used a now out dated withdrawal rate has still managed to likely not run out until year 20+. A small adjustment to the withdrawal rate calculation is probably all that would have been needed. In those early years it there is more chance of being able to top up any income shortfall with a bit of part time income.

I think the data in the link would need further investigation as retiring in 2000 from a UK perspective with a 4% withdrawal rate from a global 60/40 portfolio gives me much more positive numbers.

In 2000 you could get 2.4 CAD for 1 GBP.  Today its 1.7.  That’s a 30% difference right there as the pound got a lot cheaper. 

Balanced (60/40) portfolio did better than the equity and aggressive portfolios I quoted. 

Thats irrelevant to a Canadian retiring in Canada which was your scare story. 

LucyTheWestie

dunstonh said:

I am defining the failure of an investment as a failure of the investment.  i.e. scam or massive loss.     
Not a failure of planning or failure in expectation.  Both of which are more common.

I am not sure if failure to plan or failure in expectation is fair.  In many cases, being unable to prepare for the future is probably more likely.
For example, the average family will have little money left for their future, once they have paid for the things they need today.  The cost of having a home, food to eat and the uncertainty of whether or not they will be still employed in six months will determine their ability to save.  
I am a professional person - I have worked all my career.  But I could not afford to live in the town where I grew up.  I had to move away to be able to afford a simple home and keep my family.  I have a modest lifestyle, no exotic holidays or hobbies.  A basic car and so on.  I have saved my hard earned money.... I have tried to do all the right things, but I would still question whether or not I could afford to live in retirement.   My schoolmates who were not so lucky in life - where will they be?

LucyTheWestie

.....UK interest rates are at a 325yr historic low.     

Thrugelmir

LucyTheWestie said:

.....UK interest rates are at a 325yr historic low.     

Which forces investors to take on increasing higher levels of risk to have any hope of generating a decent return. 

dunstonh

For example, the average family will have little money left for their future, once they have paid for the things they need today. 

But a good chunk of them will spend money on things they do not need to keep up with the Jones.   Some spend more money on a mobile phone each month than they do their pension.   They buy more x-box games or eat out constantly or change their BMW every 2-3 years.   Then claim they couldn't afford to save for retirement.

I am not sure if failure to plan or failure in expectation is fair.  In many cases, being unable to prepare for the future is probably more likely.

It very often is a failure to plan.    Or a failure to keep under review.    You often see cases like someone who started paying £30pm in 1988.    That was a good contribution back then.   However, 30 years later, they are still paying £30pm and never increased it.  That is a failure.

83705628

This is an interesting debate about the nature of retirement in today's economy, the state pension I think only started very modestly in 1911 under Lloyd George and he had to fight crowds of people who wanted 8 battleships to get it. In the post war era as they became more normal they weren't necessarily seen as a good thing, and the state pension in those days was a pittance. In much of the developing world, your kids are your retirement.
David Willetts talk "The Pinch" has some interesting ideas about this: https://youtu.be/ZuXzvjBYW8A